ISA basics
Is a Stocks and Shares ISA halal?
Why the ISA wrapper alone doesn't answer the question, and what to check inside the account.
The short answer
A Stocks and Shares ISA is a tax wrapper. Whether it is Shariah-compatible depends on the investments and how the provider manages cash and governance. The letters “ISA” do not decide Shariah status.
Separate the tax question from the investment question
ISA rules cover tax, not whether a company, fund or cash product meets a Shariah test. You must look at the holdings and how they are chosen.
Start with the provider's investment universe. Ask how each holding is selected, checked and removed if its status changes. If you use a fund, read its factsheet, prospectus and index or screening rules.
Shariah-compliance considerations
For our platform, AAOIFI Shari'ah Standard No. 21 is the default practical screening benchmark. It checks the company's main business first, then checks key financial ratios. It is widely used in Islamic finance, but it is not a personal ruling or the only scholarly method.
In simple terms, the common AAOIFI application checks that non-permissible income is below 5% of total income, and that interest-bearing debt and interest-bearing cash or securities are each no more than 30% of market value. Check how your provider calculates and updates these figures.
Also check cash in your ISA. Providers may hold uninvested money as cash, and that cash policy matters if you avoid interest. Read the provider's cash-interest policy and its Shariah governance document.
What this means in practice
- 1Read the provider's investment methodology and cash policy before you apply.
- 2For every fund, check the holdings, index rules and any use of derivatives or securities lending.
- 3Find who oversees Shariah compliance, how often holdings are reviewed and what happens after a downgrade.
- 4Save the version and date of the documents you relied on.